Wednesday, October 04, 2006

Payday lenders: saviors or wolves in sheeps clothing?

It seems so easy, so tempting. You go to payday lender for a short-term loan. You fill out your financial information and write a post dated check. It is after that when you get hit with the fees, with interest rates as high as 390% yearly. You get sucked into a never ending cycle. Soon, it gets to the point where you can no longer pay off the loans. As if they don't have enough financial burdens, young military personel are increasingly being targeted with these short-term, high interest loans. Therefore, the question becomes this: Are payday lenders saviors or wolves in sheepe clothing?

I found an interesting article on this at CBSNews.com. It seems that our military personel are very technically proficient in doing their jobs. It is just that in this instant gratification addicted world, it is easy to forget that just because you have checks in your check book, that doesn't mean that you have money in your checking account. Our military personel are just not financial proficient in their day to day lives.

Payday lenders offer tempting short-term loans for a fee, due on payday. What McClintic and a growing number of military borrowers don't foresee is how fast those loans and fees add up.

It seems like it should be simple, but once you take out the $500 loan, you need $575 extra in a payday to pay it off," McClintic says. "Nobody has that."

So what ends up happening is, "You kept taking out the loan and repaying it."

McClintic and his wife ended up owing fees amounting to 390 percent at an annual rate on five separate payday loans due at once.

Today, he's trying to navigate his way out of debt.

"I called them and I said, 'Look, there is no way I can pay all these loans this payday," says McClintic.

Virginia's "Hampton Roads' area is a magnet for payday lenders. The world's largest naval base offers up an endless supply of young sailors with tight budgets and steady paychecks.

But payday lenders reject critics claims that they're "legal loansharks". They insist they help people on active duty stretch their paychecks in a pinch.

Lyndsey Medsker, spokeswoman of Community of Financial Services Association, says payday lenders provide a service to the people who find themselves in financial need.

"At the end of the day it's their choice," she says. "They weigh their options. It can be a bounced check, a reconnected utility fee, whatever it may be, they look at their options and they are making the choice."

Payday lenders may find easy targets among young troops, and the top brass worries debt could be distracting or turn them into security risks who could be compromised by terrorists or spies.

"It's the ability of that young man or woman to resist all those temptations," says Navy Adm. Steve Turcotte. "The ability of that young man or woman to fully focus and work on his job."

The Navy is pushing for stricter laws governing payday lenders and offers financial counseling and other relief for sailors like McClintic.

McClintic is confident he'll get out of debt, though he says, "In time. It may take a while."

He blames himself, not the payday lenders, but admits he never would have gotten all those loans if it hadn't been so easy.

Yes, it does seem so easy. The thing is you end up taking out loands to pay off the previous loans. You wind up in a kind of financial quicksand. you find yourself in so deep, you can't find your way out.